By Noble Drakoln
"Corn" is an English word used to describe any type of grain. In many parts of the world, it is known as "maize," which was the name predominately used before grain was discovered in the New World. The origins of corn have been hotly debated; some estimates of when it was domesticated range as far back as 12,000 years ago.
Corn is among the most versatile and complex grains in the world, and corn production and distribution has changed the face of history. With 270 million metric tons of corn produced annually in the U.S. alone, corn could be considered the most important grain crop on the planet.
With so much acreage devoted to corn, this adaptable grain has clearly become a staple in the diets of people throughout the world. From the corn that feeds the animals we eat to the corn syrup in our processed foods and beverages to the ears of sweet corn and much, much more, this adaptable grain crop is everywhere. From Italy to Africa to Romania to South America, everyone has a specialty dish that revolves around this ubiquitous grain crop in some form or fashion. In fact, it might one day be the only source of fuel for our vehicles. (Each month can bring new growth opportunities, if you know where the right investment seeds are. Find out more in Investing Seasonally In The Corn Market.)
A sample commodity futures contract for corn is shown in the following table.
|Corn Contract Specifications|
|Ticker Symbol||Open Outcry: C (CBOT)
Electronic: ZC (eCBOT)
|Contract Size||5,000 bushels|
|Deliverable Grades||No. 2 yellow at par. No. 1 yellow at 1.5 cents per bushel over contract price. No. 3 yellow at 1.5 cents per bushel under contract price.|
|Contract Months||March, May, July, Sept, Dec|
|Trading Hours||CBOT Open Outcry: Monday-Friday 9:30am-1:15pm CST
eCBOT Electronic: Sunday-Friday 6:31pm-6am and 9:30am-1:15pm CST
|Last Trading Day||The business day prior to the 15th calendar day of the contract month|
|Last Delivery Day||Second business day following the last trading day of the delivery month|
|Price Quote||Cents per bushel|
|Tick Size||.25 cents/bu ($12.50/contract)|
Daily Price Limit
(Not applicable in electronic markets)
Understanding Corn Contracts
Like every commodity, corn has its own ticker symbol, contract value and margin requirements. To successfully trade a commodity, you must be aware of these key components and understand how to use them to calculate your potential profits and loss.
For instance, if you buy or sell a corn futures contract, you will see a ticker tape handle that looks like this:
|C8X @ 601\'5|
This is just like saying "Corn (C) 2008 (8) November (K) at $6.0150/bushel (601'5)". A trader buys or sells a corn contract according to this type of quotation.
Depending on the quoted price, the value of a commodities contract is based on the current price of the market multiplied by the actual value of the contract itself. In this instance, the corn contract equals the equivalent of 5,000 bushels multiplied by our hypothetical price of $6.0150, as in:
$6.0150 x 5,000 bushels = $30,075
Commodities are traded based on margin, and the margin changes based on market volatility and the current face value of the contract. For example, to trade a corn contract on the Chicago Board of Trade (CBOT), a trader may be required to maintain a margin of $1,350, which is approximately 4.5% of the face value.
Calculating a Change in Price
Because commodity contracts are customized, every price movement has its own distinct value. A 1 cent move in a corn contract is equal to $50. When determining the CBOT's corn profit and loss figures, you calculate the difference between the contract price and the exit price and then multiply the result by $50. For example, if prices move from 601'6-550'6, you multiply the difference, which is $33, by $50 to yield a contract value change of $1,650.
|Corn Contract Price (1 cent move = $50)||601\'6||550\'6||51 cents or $2,550|
Corn is traded in an open outcry format and electronically through the Chicago Mercantile Exchange (CME) Group (CME, e-CBOT), the Brazilian Mercantile and Futures Exchange (BM&F), Mercado a Termino de Buenos Aires (MATba), Dalian Commodity Exchange (DCE), Kansai Commodities Exchange (KANEX), National Commodity and Derivatives Exchange (NCDEX) and the Tokyo Grain Exchange (TGE).
Facts About Production
Approximately 525 million metric tons of corn is produced annually. The U.S. is the leading producer, with almost 260 million metric tons. China is a close second, producing more than 110 million metric tons a year. Brazil is a very far third, producing 37.5 million metric tons annually. The only other grains that come close to corn in terms of production are rice and wheat.
Despite the widely diverse uses for corn, it is still primarily used as livestock feed. Throughout the U.S., cattle, chicken and hog ranchers depend on corn to maintain and fatten their livestock. A small portion of corn is diverted into corn syrup, new plastics and alcohol, and corn is also diverted to produce ethanol to create a cleaner, less expensive fuel source.
Factors That Influence Corn's Price
The price is influenced by the following factors:
- To fulfill biofuel needs in the U.S., a new form of corn has been introduced. Called tropical maize, this corn variety requires little nitrogen, unlike standard sweet corn, and stores 25% more sugar in the stalk because it does not produce any ears of corn. Tropical maize also has a short gestation period and can be easily rotated with standard corn or soybean crops without depleting the soil.
- Over half of the planted corn has been genetically modified to be more resistant to disease and herbicides.
- The United States Department of Agriculture (USDA) produces several important reports on corn. Every year in the second half of March, its Prospective Plantings report is released, which details how much and which crops will be planted by farmers for the upcoming season. Every month thereafter, its Monthly Crop Production report estimates the supply and demand for soybeans. The Grain Stocksreport is published four times a year and examines the supply of soybeans and various other grains on a state-by-state basis and looks at whether the soybeans are offsite or onsite.
- The North American Free Trade Agreement (NAFTA) added corn as one of its freely traded products, wreaking havoc on the Mexican economy because of the disparity between subsidies and farming sophistication. (For more on NAFTA, see NAFTA's Winners And Losers.)
Corn is a phenomenally versatile grain that is used to feed animals, humans and perhaps eventually feed cars. The saturation of corn in the global economy makes it extremely price-sensitive both in supply and demand. How the global marketplace will react to future shortages or miscalculations in demand will be the main factor in determining whether corn prices will double again, as in 1996. Commodities: Cotton
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